Katalin Antalóczy (p), Magdolna Sass

Mariia Shkolnykova

Katalin Antalóczy – Magdolna Sass
How have governments' investment promotion policies changed: the case of Hungary

The impact of the COVID-pandemic, the Russia-Ukraine war, rapid technological change (Industry 4.0) and industry-level regulatory changes (e.g. the transition to electric vehicle production in Europe) fundamentally change the relative values of investment locations (locational advantages in Dunning’s sense). This has implications at the regional level as well. Hungary is among those countries of Central and Eastern Europe, which relies to a great extent on foreign direct investment, denoted its development model as one built mainly on FDI and within that FDI-related participation in global value chains. While in the 90s and beginnings of 2000, regional agencies and governments played an important role in attracting FDI, this has changed considerably after 2010 in the analysed country – mainly opposed to the trend in European Union. Based on interviews with representatives of local and central governments and agencies, we show that 1. the centralisation of FDI promotion and attraction resulted in a mismatch between local competencies and the nature (required skill levels, other characteristics) of the FDI projects realised locally; 2. the dominance of (very) large, in the majority of cases global value chain-related projects with limited local linkages over medium and small sized ones; 3. a potential overspecialisation due to the favouring of certain industries/activities; 4. a further increase in regional inequalities due to favouring certain regions.
JEL-codes: F21, F23, O24
Key words: investment promotion, foreign direct investment, global value chains, Hungary

Balázs Páger (p)

Katalin Antalóczy

Examining the effect of FDI plants on the entry of new firms is an emerging field within entrepreneurship literature. This study contributes to this field by investigating how the presence of FDI influences entrepreneurial activity in Hungarian agglomeration areas. Building on a panel dataset of Hungarian firms provided by the Databank of the Centre for Economic and Regional Studies, the paper analyses whether the effects of the presence of FDI companies on firm entries are negative or positive. In the frame of this investigation, we attempt to reveal both the cross-sectional (region, industry) impacts and the time effects.

Magdolna Sass (p), Jana Vlcková

Balázs Páger

The automotive industry plays a significant role in the economies of Czechia and Hungary, as both countries are highly integrated into global value chains, firstly related to their participation in regional (European), German-led global value chains, and secondly, in GVCs organised by outside European countries (mainly from Asia) aimed at producing for and supplying European markets. This integration of the two countries is based mainly on providing lower value added activities compared to the core (developed) automotive economies. Using and statistically analysing data on trade in value added (TiVA) and input output tables and firm-level data from Orbis, we explore the origins, organizational and ownership structures, and geographic locations of automotive manufacturers in both countries. Besides the similarities (dominance of foreign-owned firms in the industry, high level of integration in/dependence on GVCs, geographically relatively concentrated production capacities), we call the attention to the differences between the two countries: higher inclination to upgrading by both domestic and foreign firms in Czechia and lower skill intensities and connected to that higher regional dispersion of the capacities compared to Hungary. Through these two differences, we highlight, that Czechia could strengthen its position in the integrated periphery of the industry with moving towards higher value-added activities and benefitting from less adverse regional inequality compared to Hungary. On the other hand, Hungary can upgrade rather through higher local value added of already existing capacities, reinforcing the regional concentration and foreign ownership dominance in the industry. However, we emphasize that it remains to be seen, how the transition to electric vehicle production made mandatory by regulatory changes in Europe, changes the industry landscape in the two countries and how existing policies are responding to this challange shaping these changes.

Zsuzsanna Zsibók, Zoltan Gal (p), Stefan Apostol

Magdolna Sass

The study examines the spatial relationships between foreign direct investment (FDI) and productivity, economic output, and wage levels in 60 regions throughout Eastern Europe, including Czechia, Hungary, Slovakia, Austria, Romania, and Poland. By using spatial econometric models, we analyze the impact of FDI on economic outcomes in each region, taking into account the spatial interdependence between neighbouring regions.
FDI significantly affects productivity, GDP, and salary levels, suggesting that FDI has a positive spillover effect on economic performance in the region, however the impact of the FDI-led development model on GDP growth is smaller than commonly expected. At the same time, despite its smaller development impact, it further increases regional disparities.
Development impact of FDI is often short-term and geographically limited and negatively significant in certain regions. Furthermore, the results emphasize the importance of accounting for spatial dependence, as neglecting this interdependence can lead to biased estimates of FDI's effects.
In addition to contributing to the literature on foreign direct investment and economic development, the study provides new insights into the spatial relationships between foreign direct investment and economic outcomes in Eastern Europe. These findings have significant implications for policymakers and investors, as they suggest that FDI can be a single powerful tool for promoting economic growth and improving living standards. However, this conclusion is more controversial when applied to FDI dependent market economies.

Mariia Shkolnykova (p)

Zoltan Gal

The topic of foreign direct investments (FDI) and its impact on domestic economies has gained major attention in scientific discussion across disciplines. In case of innovation economics and economic geography, literature often deals with the effect of so-called knowledge spillovers, which reflect the knowledge sharing, knowledge absorption and its following application, on the economic and innovation performance of the firms (Narula and Driffield 2012).
Although spillovers are in general estimated to positively impact domestic economies, more differentiated picture may be observed, when distinguishing between different spillover types (horizontal and vertical) and spillover channels (e.g., product demonstration, labour mobility, competition in the market) (Demena and Murshed 2018). The highest discrepancies can be seen with regards to horizontal knowledge spillover between MNE subsidiaries and domestic firms, especially when firm-level panel data is considered (Rojec and Knell 2018). Here specific research gaps can be observed. For example, when investigating the effect of the horizontal knowledge spillover on the innovation performance of domestic firms, the previous authors have mostly dealt with quantity of innovations (e.g., number of patent applications), whereas quality of the innovations remained unconsidered. Moreover, when looking at employee mobility, no differentiation between founders of own entrepreneurial firms and employees of domestic incumbent firms was normally made. This is where this paper ties in.
The purpose of the study is to investigate the impact of labour mobility from MNEs to domestic firms on the innovation performance of the firms in Visegrad group (V4) countries. Adding to existing literature, the analysis includes not only the quantity, but also quality of innovation, including both impact and novelty dimension. Additionally, the variable, indicating whether the domestic firm was founded by former MNE employee or presents an incumbent firm, is considered. The analysis is based on the employer-employee-level panel dataset for the period from 2005 to 2019, which covers innovation activities across V4 countries. In addition to firms with former MNE employees, their statistical twins were included in the econometric analysis as the reference group to prove the robustness of the results and impact of FDI-induced knowledge spillover. Initial results indicate the differentiated impact of labour mobility on domestic firm innovation performance depending on firm type and industry characteristics.
This study thus contributes to the theoretical discussion on the FDI impact on domestic firm innovation performance as well as provides implications to policy-makers and managers with regards to the funding of high-skilled human capital.